Shutdown clouds holiday forecast

NEW YORK - Americans, who are increasingly optimistic about improving economic conditions, are expected to spend at a faster clip during the holiday shopping season than they did last year.

NEW YORK ó Americans, who are increasingly optimistic about improving economic conditions, are expected to spend at a faster clip during the holiday shopping season than they did last year.

But that could change if the partial government shutdown that has forced about 800,000 federal workers off the job continues and causes shoppers to lose confidence in the economy.

The National Retail Federation, the nationís largest retail trade group, released a forecast yesterday that sales in November and December will rise 3.9 percent to $602.1 billion. Thatís above the 3.5 percent increase a year ago and the 3.3 percent average annual increase during the past decade.

But Matthew Shay, the groupís president and CEO, said on Wednesday that the forecast was calculated before the government shut down after Congress failed to pass a spending bill by Mondayís midnight deadline.

In addition to the furlough of hundreds of thousands of workers, national parks were shuttered and a range of government services were halted.

Shay said the groupís forecast does not account for the possibility that the shutdown, in its third day yesterday, could go on for two weeks or longer. But the forecast does factor in the optimism Americans feel as jobs have become easier to get and the housing recovery has gained momentum.

ďWhat we are trying to balance here is the underlying fundamentals with the economy, which seem strong, against all that consumer unease and the uncertainty coming from Washington,Ē Shay said.

He acknowledged that predicting how the holiday season will fare is difficult. In fact, the National Retail Federation has often been either too cautious or too optimistic. Last year, for instance, the groupís forecast of 4.1 percent increase was far higher than the 3.5 percent rise that retailers actually saw.

But the forecast nonetheless is an important indicator for retailers that rely on the last two months of the year for 20 to 40 percent of their annual sales.

The estimates also provide insight for economists into consumer spending, which accounts for up to 70 percent of economic activity.

A big concern is that a prolonged government shutdown could severely hurt the economy and, necessarily, consumer spending. For each week the government remains shut, the U.S. economy would lose 0.15 percent of annualized growth, estimates David Stockton, a former research director at the Federal Reserve who is now at the Peterson Institute.

And even before the government shutdown, retailers had reasons to be cautious. Although the job and housing markets are improving, that hasnít translated into sustained spending increases among most shoppers.

Meanwhile, Wal-Mart Stores Inc. and other low-priced chains say that customers continue to struggle with a 2 percentage-point increase in the Social Security payroll tax that started on Jan. 1.

Those worries hurt storesí sales during the back-to-school shopping season, the second-largest shopping period behind the winter holidays. And a slew of retailers lowered their expectations for the rest of the year.

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